Intel may have totally sunk Microsoft's latest plan to conquer smartphones (MSFT, INTC)

Microsoft

Microsoft's phone business is struggling: Sales of its flagship Lumia brands are down 72% over the same time last year.

But Microsoft has been urging calm, dropping lots of hints that the long-rumored Surface Phone, said to be due in 2017, will change everything. Microsoft has even said that it could put Apple and the iPhone on the defensive.

It's a nice idea.

But Intel, one of Microsoft's oldest and best partners, is having its own difficulties breaking into mobile. As a result of those troubles, Intel might have made a decision that could sink the Surface Phone and its rumored best feature — the ability to run standard Windows desktop software — before it's even officially announced.

Mobile headaches

This week, Intel revealed that it won't release its next-generation Atom chip for mobile devices, which was code-named "Braxton." Competitors like Qualcomm and ARM have all pushed Intel out of the growing mobile market, and the chip titan just can't compete.

Meanwhile, Microsoft has been pitching a feature called "Continuum" as a killer app for the Windows 10 Mobile phone operating system. Basically, if you're using a Lumia 950 or 950XL flagship phone from Microsoft, Continuum lets you plug a phone into a monitor, a mouse, and a keyboard and use it kind of like a desktop PC.

Microsoft

That feature is very cool, and potentially game-changing for places where smartphones are more affordable than PCs, like Microsoft CEO Satya Nadella's childhood home of India. It's something that neither Google nor Apple can currently match.

But in its current form, and with the Lumia 950 running on a Qualcomm processor, Continuum is extremely limited.

First, the Lumia is clearly limited to the apps only on the Windows Store market, which is not as well stocked as Apple's App Store or the Google Play Store. Second, an app has to specifically support Continuum, and so far it's mostly Microsoft's own products, like the Edge browser and the Office suite, that have taken the plunge.

Intel could help

Intel could help Microsoft address all of those problems with Continuum. With an Intel chip, rather than a Qualcomm one, the would-be Surface Phone could more easily be rigged up to run legacy Windows software in Continuum mode. It would make that phone a much more viable and interesting PC-replacement option, with a much wider base of software.

Indeed, as The Register points out, Microsoft is said to have been planning on placing an Intel Atom chip into the Surface Phone.

The low-powered Atom would be ideal for cutting down on power consumption while still allowing for Windows software to run. It would take the novelty that is Continuum today and turn it into a real competitive advantage for the Surface Phone and Windows 10 Mobile.

Microsoft

With Intel jettisoning the next version of Atom, Microsoft could be in a pickle.

Maybe they'll figure out some way to cram a desktop PC's Intel chip in there, or maybe they have some kind of deep sorcery that will let them run Windows software on a smartphone processor.

But without that killer Continuum feature, it's going to make it much harder for Microsoft to make that promised dent in the smartphone market.

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